Upgrades/downgrades Globe& Mail this morning * Birchcliff Energy Ltd. (
) to “sector perform” from “outperform” with a $13 target from $16.50. Average: $13.86.
Analyst: “The steep and sudden natural gas price decline creates risks for BIR’s near-term plans. The company’s Q4/22 capex increase pushed its debt extinguishment plan into Q1/23; however, the 2023 NYMEX strip has dropped ~33% since the announcement — likely pushing the zero debt horizon further into the future. Moreover, BIR’s plan for a tenfold dividend increase beginning in Q1/23 could put additional pressure on the company’s cash flows. We estimate the company’s 2023 break-even (capex and base dividend) at $3.25/mmBtu to $3.50/mmBtu Henry Hub (with the later estimate based on our higher capex forecast versus the company’s guidance). Given BIR’s relatively high break-even (and lack of hedges), we expect the market to have concerns about the sustainability of the planned dividend barring a sudden reversal for natural gas prices. It is important to note, these issues are not major risks for the company. BIR’s has a strong balance sheet, high quality asset base, and sub-US$2.00/mmBtu capex break-even. However, we believe the equity could lag in 2023, given the headwinds for natural gas prices.”